This is school enrollment period again and many Americans have realized that the cost of education is on the rise. According to statistics from the College Board, the average cost of education for 2011 has risen by 4.5% for private colleges and 7% for public universities as compared to 2010. For those of you feeling the pinch of the extra costs of education, it may be a good time to consider the various savings availed through various IRS tax reliefs.
More People Going Back to School
Besides the high costs of education, there also seems to be an increase in the number of people seeking education. The economic downturn and the high unemployment rate had its impact on education. There are many more people enrolling in school than there have been in the past years. People recon that to remain competitive in the employment world, one needs to up their education by adding a certification, degree, or extra training in their field of work. In fact, according to statistics from the Department of Education, there has been more enrollment in educational institutions for people over 35 years of age than there have been for people aged between 18 and 24 between 2008 and 2010. This shows that many people who are already in employment are seeking to harness their skills by taking some extra education. What’s great is that Uncle Sam is providing some help with the costs of education for those going back to school. There are numerous tax reliefs available that can be claimed by those enrolling in school.
Some of the Available Tax Breaks
The different tax breaks available for educational costs cover different aspects of education. The American Opportunity Tax Credit is one of the most claimed relief for those taking undergraduate courses. The tax break provides an annual credit of $2,500 for 4 years of undergraduate education. $1,500 of this amount is non refundable and can only be set off against irs relief outstanding tax debt. However, the remaining $1,000 is refundable and one can receive a refund check for this amount. The Lifetime Learning Credit on the other hand, provides a non refundable $2,000 against tuition fees per year per family. The 529 plans are tax sheltered accounts for saving up for education and deposits into these accounts by parents or grandparents are not taxed and do not count under the gift tax rules. Other tax reliefs related to education include a tax deduction for student loan interest, penalty free withdrawals from IRA funds for education and tax free employer provided education.
Tax Breaks and Income Levels
When planning for your taxes, one of the things that a taxpayer needs to keep in mind is the reliefs accessibility is based on one’s income. The different tax reliefs are usually subject to income caps. The American Opportunity Credit is phased out at incomes of $90,000 for single filers and $180,000 for those who file jointly. The Lifetime Learning Credit on the other hand, is phased out at $61,000 for singles and $122,000 for joint filers. The 529 plans do not have a salary cap. If you are on a high income bracket, you can also seek to optimize on reliefs by claiming the reliefs through your children. If a child earns income and provides at least 50% of their educational costs, they may still qualify for tax credits that may be available to the parents.
Bottom line – when it comes to educational related tax relief, it is advisable to get the right information and plan accordingly. If your educational costs are significant, it may be advisable to consult with a tax professional so as to plan your taxes and make the most of the opportunities availed by Uncle Sam.